Mises on Schools

Ludwig von Mises:

Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement but conservatories of tradition and unvarying modes of thought. The mark of the creative mind is that it defies a part of what it has learned or, at least, adds something new to it. One utterly misconstrues the feats of the pioneer in reducing them to the instruction he got from his teachers. No matter how efficient school training may be, it would only produce stagnation, orthodoxy, and rigid pedantry if there were no uncommon men pushing forward beyond the wisdom of their tutors. [Theory and History: An Interpretation of Social and Economic Evolution , p. 263]

Prices

Ludwig von Mises:

He who believes the formation of prices to be arbitrary easily arrives at the demand that they should be fixed by external regulation. [A Critique of Interventionism, p. 97]

Taxing Incomes & Estates

Ludwig von Mises:

If the present American methods of taxing incomes and estates had been adopted fifty years ago, most of those new things which no American would like to do without today would not have been developed at all or, if they had, would have been inaccessible to the greater part of the nation. (Theory and History, p. 238)

Economics: The Primary Civic Duty

In Human Action Ludwig von Mises writes:

". . . As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake.

Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty.

Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen." (p. 875)

Of course, this is a pretty easy thing for an economist to believe. I wonder how many others, economists and non-economists, agree with Mises?

Profit & Loss

Ludwig von Mises:

“Profit is the difference between the higher value of the good obtained and the lower value of the good sacrificed for its obtainment. If the action, due to bungling, error, and unanticipated change in conditions, or to other circumstances, results in obtaining something to which the actor attaches a lower value than to the price paid, the action generates a loss. Since action invariably aims to substitute a state of affairs which the actor considers as more satisfactory for a state which he considers less satisfactory, action always aims at profit and never at loss. This is valid not only for the actions of individuals in a market economy but no less for the actions of the economic director of a socialist society.” (Theory and History, p. 210)

Here is President Obama commenting on profits for Wall Street businesses.



It seems to me that the best way to think about "profit" is the way Mises explains, and of course this view of profit does not support the President's view. It is always a time to profit, or to make profit, and never a welcome time when loss is made instead.

The President seems to believe that in a time of recession businesses should not be earning profits. The implication of this is that instead, in a time of recession, businesses should earning losses, because profit and loss are terms that characterize the opposite results of human actions. But this is a perverse view isn't it? After all, businesses can only earn profits if their efforts to produce and sell goods and services sufficiently predict consumer desires in the future.

Mises's view of profit and loss is also informative about the President's actions in encouraging us to believe that now is not the time for Wall Street businesses to earn profits. The President's actions in politics can either serve to gain a state of affairs he regards as more satisfactory (profit) or a state of affairs he regards as less satisfactory (loss). Thus the President is acting as though he believes he will personally profit by castigating the efforts made by others to profit themselves by supplying consumers with goods and services they want. Oh, and incidentally, when consumers are able to buy goods and services they want, the consumers gain profit for themselves as well.

In the freedom of voluntary market exchange, the actions of businesses and consumers to profit themselves is positive sum. It is indeed possible for buyers and sellers to choose well their personal courses of action in face of an uncertain future, and both buyers and sellers can profit from exchange.

The President seems to see the situation as zero sum. He seems to be suggesting that profits for Wall Street businesses necessarily mean losses for consumers. But, while a business or a consumer need not choose well and thus profit from their choices, on the whole the realm of free and voluntary exchange is positive sum. It is in the President's world, the world of politics in which the struggle between competitors is over which will win the opportunity to determine the way that force will be used in the lives of others, that we should be prepared to expect to find a zero sum (even a negative sum) world. So, it seems, the President is apparently thinking that he will personally profit by encouraging his listeners to believe that they will also profit if there is greater reliance of the zero sum realm of politics instead of the positive sum realm of market exchange.

I'm pretty sure the view the President encourages will not profit me, but I also fear that because of the nature of politics it may well profit him.

Sole Task of Economics

Ludgwig von Mises:

Economics is not about goods and services, it is about the actions of living men. Its goal is not to dwell upon imaginary constructions such as equilibrium. These constructions are only tools of reasoning. The sole task of economics is analysis of the actions of men, is the analysis of processes. (Human Action, p. 354)

Of Entrepreneurs & Philosophers

LUDWIG VON MISES:

It is not the business of the entrepreneurs to make people substitute sound ideologies for unsound. It rests with the philosophers to change people's ideas and ideals. The entrepreneur serves the consumers as they are today, however wicked and ignorant. [Human Action, p. 297]

Consumers Captain Economic Ship

LUDWIG VON MISES:

The direction of all economics affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him." [Human Action, p. 270]

Never Merely Consumer

Ludwig von Mises:

"Living and acting man by necessity combines various functions. He is never merely a consumer. He is in addition either an entrepreneur, landowner, capitalist, or worker, or a person supported by the intake earned by such people." [Human Action p. 253]

Hmm, where does the politician fit? Or, has Mises neglected to include politician in his list of various functions?

The Loss Of Individual Liberty

PETER ROBINSON:

"All that the nation's founders understood two centuries ago about the imperative of limited government, all that we learned from the long struggle between collectivism and free markets during our own time--all this could soon simply evanesce.

We are being asked to unlearn what we know, to surrender the virtues that can only be acquired in conditions of freedom, and to become a lesser people than we are. The land of the free and the home of the brave could soon be transformed into the land of the dependent and the home of the infantilized.

I may not have seen it at the time, but Milton Friedman was right. The challenge for this generation is to keep our liberty. And the challenge is now upon us."

Earlier in Mr. Robinson's piece he tells us of a conversation over dinner with Milton Friedman which includes this:

I had just re-read God and Man at Yale, the 1951 book in which William F. Buckley Jr., denounced the leftist attitudes he had encountered among the Yale faculty and administration as an undergraduate. Buckley singled out the department of economics as the most collectivist department on the campus. "Today," I said, "nobody would call the economics department at a major university 'collectivist.'"

Academia as a whole may have continued its long, sorry wobble to the left, I continued, but the economics profession had proved an exception, moving the other way. Departments of economics across the country now grasped the importance of free markets. "Mises, Hayek, Stigler and you," I told Friedman. "You've transformed the intellectual climate. You've won."

I suspect it is not true that economics departments across the country have not wobbled to the left. Efficiency economics abounds, and the conceptual framework of economics is static rather than dynamic, and as such, I believe efficiency economics is very far from the economic lessons taught by Hayek and Mises. I suspect that most of economics today falls prey to Hayek's The Fatal Conceit "that man is able to shape the world around him according to his wishes." Isn't this fatal conceit, after all, the conceptual nature of any discussion that involves the role of government as correcting market failure?

I do agree with Mr. Robinson that it would be a good thing for many of us to decide now is the time to work to save the idea of individual liberty.

[HT: Instapundit]

Interventionism & The Lessons of History

Ludwig von Mises from his book INTERVENTIONISM:

This analysis is intended merely to explain that the economic policy of interventionism,which is advertised by its advocates as a progressive socio-economic policy, is based on a fallacy. This book demonstrates that it is not true that interventionism can lead to a lasting system of economic organization. The various measures, by which interventionism tries to direct business, cannot achieve the aims its honest advocates are seeking by their application. Interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate. They create unemployment, depression, monopoly, distress. They may make a few people richer, but they make all others poorer and less satisfied. If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the short-comings of earlier interventions, they will find eventually that they have adopted socialism.

[ . . . . ]

If there is anything history could teach us it would be that no nation has ever created a higher civilization without private ownership of the means of production and that democracy has only been found where private ownership of the means of production has existed.

Should our civilization perish, it will not be because it is doomed, but because people refused to learn from theory or from history. It is not fate that determines the future of human society, but man himself. The decay of Western civilization is not an act of God, something which cannot be averted. If it comes, it will be the result of a policy which still can be abandoned and replaced by a better policy. (pp. 92-93)

Our system of political economy today is very much interventionist. Of course it is also "capitalist" in that there is a large realm of private ownership of the means of production. One of the important things to learn from this book is that the policies of the interventionist don't accomplish the goals of the interventionist. But not to worry for the interventionist because for the interventionist this just means it will always seem like there is more work to do later on. In other words, the interventionist politician has a pretty good scam working in that the earlier interventions of legislation and regulation just turn into situations later that are seen as needing more legislation and more regulation. Aaron Wildavsky noticed this too, and in SPEAKING TRUTH TO POWER he explained his conclusion that government had never fixed any of the problems it sought to fix. Instead, it was his assessment that government merely created more and/or different problems for the future to face.

Ludwig von Mises ends his analysis of interventionism with the words I quote above. So, he seems to hold some optimism that we can, and might, still learn our lessons from history. Unfortunately, it seems to me that politics today suggests that not enough people have learned these lessons. There seem to be very few voices speaking about interventionism and the present financial situation. Certainly few of our politicians are speaking publicly about the present "crisis" by noting it is likely the result of earlier government interventions.

Take a look also at the policies advocated by the presidential candidates and by our two major political parties. The policy debates tend not to be about reducing the interventionism in our system of political economy, but rather they seem to be about which new intervention will be the better intervention. The "change" being debated is not a change away from interventionism and back toward capitalism. Pity. It seems too many refuse to learn from history.